Carbon tax may cause short-term loss, but most firms share net-zero goals
As companies are already applying their own internal carbon prices and are aligned on decarbonisation, the carbon tax should not have too much of an impact on Singapore's competitiveness, says Finance Minister Lawrence Wong.
IN THE short term, some companies might shift operations to avoid the carbon tax hike announced at this year's Singapore Budget. But a transition framework will mitigate this, and more importantly, many companies share Singapore's goal of decarbonising and are aligned on its net-zero vision, said Finance Minister Lawrence Wong.
Wong acknowledged the risk of "carbon leakage", where companies move their production elsewhere due to stringent climate policies.
"In the near term, the concern is real because if you look around the region, not many countries have a carbon tax to begin with."
He was speaking at the ST-BT Budget Roundtable 2022, organised by The Business Times and The Straits Times and sponsored by UOB. Wong was joined by UOB head of research Suan Teck Kin, National Trades Union Congress secretary-general Ng Chee Meng, and National University of Singapore economics and finance professor Sumit Agarwal. The roundtable was moderated by ST associate editor Vikram Khanna.
Wong announced on Feb 18 that Singapore will be bringing forward its timeline for reaching net-zero emissions "by or around mid-century".
To help meet its new net-zero goal, the carbon tax will be raised from its current S$5 per tonne of emissions to S$25 per tonne in 2024 and 2025, and S$45 per tonne in 2026 and 2027. It will be raised to between S$50 and S$80 per tonne by 2030. The current rate will remain unchanged till 2023.
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To help companies adjust, the transition framework will build in some allowances in the near term.
But all the companies that the government has spoken to understand the importance of decarbonising and moving to net zero, he said.
"In fact, all of them already apply a shadow carbon price or an internal carbon price for their own projects, and they also have plans to get to net zero by 2050 or thereabouts," he said.
"We can deal with the impact on the near term. Beyond that, I think the direction is aligned, and we should be able to move forward on the carbon tax without too much of an impact on our overall competitiveness."
Moving early will in fact give Singapore a first-mover advantage to seize the opportunities that will arise from the new green economy, said Wong.
Fellow panellist Agarwal lauded the move and suggested that Singapore go a step further by looking at ways to incentivise individuals to reduce their carbon footprint.
This could be via incentives such as an income tax rebate or cheaper financing.
"Banks could say, 'oh, you have a low carbon score and we can give you cheaper credit on your mortgages or credit cards'," he said.
If a tax is levied only at the corporation level, consumers may not think about it, he added. "When the tax is salient to the consumer, they pay more attention to it and they respond to it better."
"My view is that Singapore could be the leader in showing the world... that we are going to create an individual-level carbon score, and let the world adopt it."
Wong said that Singapore does study how to bring carbon emissions down at "the individual consumption level".
He pointed out that Singapore already adopts a carrot and stick approach, similar to what Prof Agarwal was suggesting, in certain areas such as vehicle ownership.
Sweeteners have been given to entice motorists to switch to electric vehicles, whereas on the flip side, petrol duty has been increased. "So you could think about extending something similar in other areas."
Beyond incentives and deterrents, another aspect worth taking into consideration is standards.
"Whether it's for transport or for appliances, we would have to think harder about regulatory standards and phasing out things that are dirty, that are inefficient," he said.
"That simplifies choices too; you don't even get to choose. Eventually, we will phase out internal combustion engine vehicles, and you can apply that to energy inefficient home appliances too."
It is with a combination of these different tools - taxes, incentives and standards - that Singapore can achieve its net-zero ambitions, he said.
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